Bookkeeping Cycle Flashcards

Which step in the bookkeeping cycle immediately follows posting journal entries to the ledger?

Answer: Preparing the trial balance

After posting to the ledger, the next step is preparing an unadjusted trial balance to verify debits equal credits.

A company pays $12,000 for a one-year insurance policy on July 1. What is the adjusting entry on December 31?

Answer: Debit Insurance Expense $6,000; Credit Prepaid Insurance $6,000

Six months of coverage has expired ($12,000 × 6/12 = $6,000), so Insurance Expense is debited and Prepaid Insurance is credited.

Which accounts are closed at the end of the accounting period?

Answer: Revenue, expenses, and dividends

Temporary accounts — revenues, expenses, and dividends — are closed to Retained Earnings at period end.

What does a post-closing trial balance verify?

Answer: Only permanent accounts remain open with equal debits and credits

The post-closing trial balance confirms that only balance sheet (permanent) accounts remain and total debits equal total credits.

Accrued salaries of $3,000 are unpaid at period end. Which adjusting entry is correct?

Answer: Debit Salaries Expense $3,000; Credit Salaries Payable $3,000

Accrued salaries are recorded by debiting the expense and crediting the liability (Salaries Payable) to match the period incurred.

In which order are financial statements typically prepared?

Answer: Income statement, statement of retained earnings, balance sheet

Net income from the income statement flows into the statement of retained earnings, which then feeds the balance sheet equity section.

What is the purpose of reversing entries in the bookkeeping cycle?

Answer: To simplify recording of cash transactions in the next period related to prior-period accruals

Reversing entries, made on the first day of the new period, simplify recording routine cash payments or receipts tied to prior-period accruals.